Wednesday, April 03, 2013

Still No Justice for Adam Smith

Abigail Savitch-Lew reports that Daniel Klein, George Mason
University reveals in ”The Brown Daily Herald,
April 3, HERE that Adam Smith “is well known
for praising what he called the market’s “invisible hand”.

Daniel and I have debated several times in
2009-11 Smith’s meaning in his using, twice only, the metaphor of “an invisible
hand”.

Smith may well be “well known for praising
…the market’s invisible hand”, but nowhere did he refer to “an invisible hand”
in relation to “markets” when he did so.This is a pure modern invention, sparked by a reference to such a story
by Paul A. Samuelson, in his popular “Economics: an analytical introduction”,
1948, and now believed world-wide.The story remains fictional today.

In Smith’s first use of the metaphor in “Moral
Sentiments” (1759) he referred to agriculture in the first Empires (China,
Babylon, Egypt, warlord, and feudal societies (in fact, since “Providence
divided the land”, that is, since a very long time ago).The landlords fed their serfs, not out
of their humanity, but from necessity because unfed serfs, even slaves, could not
work.

In Smith’s second use of the metaphor in
“Wealth Of Nations” (1776) he referred to merchants choosing to avoid foreign
trade in preference for domestic trade, because of their fears for the security
of their capital if sent abroad (accidents at seas, trustworthiness of foreign
partners, and preferences for domestic justice).Again, there is no reference to markets. By investing
domestically, these insecure merchants arithmetically added to “domestic
revenue and employment”, which was a public benefit.

Smith discusses markets in detail in Books I
and II of Wealth Of Nations without ever mentioning the “invisible hand”
metaphor.If the metaphor had been
in any way central or even relevant to markets Smith surely would have made
that point here.But he didn’t
which is not a mystery when the metaphor (in fairly common use by poets,
preachers, and novelists in the 17th – 18th centuries) is
treated grammatically as a metaphor and not, as moderns' claim, a “theory”.

Smith himself defined metaphors as used to
“describe in a more striking and interesting manner” their object (Smith:
“Lectures in Rhetoric and Belle Lettres”, 1763, p 29). Their object in Smith’s two uses were:
the absolute necessity of feeding slaves or serfs in order them to work –they
had no other source of subsistence – and the insecurity felt by some, but
clearly not all, merchants, that added to domestic revenue. Neither the “unfeeling” landlords were
motivated by their humanity, not were the “insecure” merchants motivated by
public duty. But their actions had
unforeseen consequences that benefitted the public good (feeding their
dependents contributed to the propagation of the species and investing
domestically added to “public revenue”).